HMRC warns taxpayers to file all qualifying income streams for MTD

Sara White, Editor, Business & Accountancy Daily. Croner.

Letters going out to taxpayers from HMRC saying they have not filed first quarterly MTD submission correctly as failed to complete both income streams.

Accountants are experiencing early day teething problems with Making Tax Digital (MTD) for Income Tax filing as some submissions were sent in without complete qualifying income details. At the time of submission of the first quarterly update, agents received a successful confirmation notice from HMRC but in fact the submission was missing income. Where a taxpayer has income from self employment and property they must file two separate quarterly updates, and not combine the income into a single submission. 

The problem means that first quarter MTD submissions filed on time by 7 August 2026 but with missing income are being flagged on the HMRC system. This has triggered a reminder letter being sent out to individual taxpayers by HMRC notifying them of the missing income and telling them to file the full income as two separate updates, so for example if self employment income exceeds £50,000 and property income is say £10,00, the total income must be submitted in two quarterly updates. It is important to note that the £50,00 threshold for MTD applies to the total qualifying income, not separate elements.

This is the first few months of MTD and there are bound to be issues with the new quarterly reporting requirement as taxpayers adjust to the new way of working. Inevitably this is leading to some worried calls to accountants and tax advisers.

Although their accountant has a record showing the client update was submitted before the first quarterly MTD deadline, it was not submitted correctly. In some instances, taxpayers may no longer be earning a certain type of income, but HMRC has to be informed as it is using tax data from the 2024-25 self assessment tax returns.

When accountants check their agent services accounts (ASAs), the HMRC system states that the submitted MTD quarterly returns are ‘showing as open’ due to the missing update, but HMRC does not clarify what the problem is.

Fortunately there are no penalties during the first year of MTD so that will be a sigh of relief for the nearly 900,000 taxpayers in the first £50,000 cohort of filers. 

An HMRC spokesperson said: ‘We’re writing to MTD customers to remind them to submit a quarterly update if they have an eligible income source which was not reported for quarter 1.

‘We encourage customers unsure about why they’ve received a letter to check their MTD account, where they can see any outstanding obligations.’

Some taxpayers with multiple eligible income sources may have already sent one or more quarterly updates, but still received a letter reminding them to submit an outstanding update.

In this case, HMRC advises the taxpayer checks their MTD online service (Manage Self Assessment), which will show the income sources provided when they signed up for MTD, and confirm which income sources require a quarterly update.

If an income source listed was added in error or duplicated during sign up, or the taxpayer’s circumstances have changed, they should update or cease the relevant income source, HMRC stressed.

This is a good lesson for the future with over one million more taxpayers earning £30,000 or more in total qualifying income set to enter mandatory MTD from 6 April 2027.  

The message for accountants and tax advisers who are getting calls from worried clients is that they need to clarify total earnings when they handle MTD to ensure there is no missing income, and then update the quarter 1 filing to reflect the correct income figures.

James Haywood, partner at Page Kirk Chartered Accountants, posting on LinkedIn, said: ‘We received an email from a client who attached a letter from HMRC stating that their first MTD ITSA quarter hadn’t been submitted. Naturally as an accountant, the beacon of chaos was lit.’

When Haywood checked the firm’s agent services account (ASA) he discovered ‘seven of our clients had outstanding quarter 1 returns despite us having successful submission receipts...I think teething problems were expected’.

HMRC told Business & Accountancy Daily that the problem is likely to relate to missing income and as such needs to be submitted correctly in the Q1 update.

Emma Rawson, director of public policy at the Association of Taxation Technicians (ATT): ‘We have been made aware of this issue, which has affected a small number of agents.

‘If agents are worried they should check the submission status in both their software and ASA, and report any problems to their vendor and HMRC.’

For detailed information on MTD, go to our dedicated MTD section